Medicare Advantage Plans Told to Hold Premium Hikes

WASHINGTON -- The Centers for Medicare and Medicaid Services (CMS) has a message for insurance companies that administer Medicare Advantage plans: If you raise premiums by more than 10% in 2012, you likely won't be allowed to enroll any Medicare beneficiaries.

CMS on Friday released a draft of proposed payment policies for Medicare Advantage (Medicare Part C), along with its plan for Medicare Part D, the prescription drug benefit.

Under the Affordable Care Act (ACA), CMS has the authority to review insurance company's proposed rates and to bar them from offering their plans to Medicare beneficiaries. That authority existed last year as well, but 2012 will be the first year where CMS has spelled out a specific percentage that will trigger a review, Jonathan Blum, director of CMS' Center for Medicare Management, told reporters on a Friday afternoon call.

"The proposed changes will help hold insurance companies accountable, improve the quality of care, and ensure Medicare Advantage remains affordable," according to a release from CMS. "At the same time, these changes provide a healthy payment update for insurance plans that will ensure that people with Medicare will continue to have a choice of affordable, high-quality plan options."

Medicare Advantage plans -- which are an option for beneficiaries in the government-run Medicare program, but are administered by private insurance companies -- are scheduled to receive 1.6% payment increase in 2012, two years before cuts in the program mandated by the ACA will take effect.

That higher payment rate comes, in part, from a bonus payment program mandated by the ACA which gives financial incentives to Medicare Advantage plans to improve quality of care for people with Medicare, said Blum.

This year's proposed updates, laid out in what is known as the Advance Notice and Call Letter, also take into account changes in Medicare Part D that were included in the ACA. For instance, seniors who hit the coverage gap known as the "doughnut hole" will receive a 50% discount on brand-name drugs, and Medicare will pay for 14% of the cost of their generic drugs when they are in the doughnut hole, which is double what it pays now.

Deductibles for Medicare Part D will increase by $10 in 2012, to $320.

The proposal is open for comments, and CMS will publish a final rate notice on April 4.